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Basel Response
The Basel Committee is working to reform the 1988 Capital Accord. RMA will continue to work with the Basel Committee by providing industry input as to how the proposals impact bank capital and overall operations. Check this site often for the most current RMA research.
Get Ready for Basel!
RMA Response to "Strengthening the resilience of the banking sector” (BCBS 164) (PDF) April 16, 2010
To date, RMA has provided the Basel Committee with a significant body of research outlining the economic capital allocation process. Papers are listed below in reverse chronological order.
- RMA Response to the Notice of Proposed Rulemaking (NPR) (PDF) October 2009
Response to NPR on capital treatment of new accounting rules dealing with consolidation of securitization-vehicle assets onto the balance sheets of sponsors of securitization activity
- RMA Standardized NPR Response (PDF) October 2008
- Downturn LGDs for Basel II (PDF) September 2005
- Response to the Proposed U.S. Supervisory Guidance for Retail Credit Risk Capital under the Basel II Framework (PDF) January 2005
This paper represents the response of the RMA Capital Working Group to the October 27, 2004 interagency notice regarding Internal Ratings-Based Systems for Retail Credit Risk for Regulatory Capital (referred to as the Retail Guidance or RG). The paper is intended to represent a fairly complete list of Group concerns regarding implementation issues as well as other, more policy-oriented, issues.
- RMA's Response to the BIS January 31, 2003 New Release proposing changes to the treatment of certain securitizations. (PDF) March, 2004
RMA's Capital Working Group proposed a framework for implementing a flexible, risk-based treatment of capital for credit cards. The proposal was put forth following a meeting on February 10, 2004 with US regulatory agencies. In addition to the proposed framework, RMA also conducted a survey of industry practices in estimating Exposure at Default (EAD) and Loss Given Default (LGD) for revolving consumer credits (credit cards and hole equity lines of credit).
- RMA Capital Working Group: Response to the January 2004 Changes to the Basel Securitization Framework (PDF) March 2004
- Memo to regulators regarding card framework FINAL. (PDF) March 12, 2004
- RMA EAD and LGD Survey Paper FINAL. (PDF) March, 2004
- Response to the October 11, 2003 Basel Treatment of EL and UL December 31, 2003
This paper represents the response of the RMA Capital Working Group to the Basel compromise regarding the treatment of expected losses (EL), unexpected losses (UL), and the Allowance for Loan and Lease Losses (ALLL). The Basel compromise was summarized within the October 11, 2003 Basel release titled "Proposed Treatment of Expected and Unexpected Losses."
- RMA's response to the US Inter-Agency Advanced Notice of Public Rulemaking and the Draft Supervisory Guidance Regarding AIRB Systems for Corporate Credit. (PDF) November 2003
- RMA Working Group on Operational Risk Regulation Comment Letter on the ANPR and DSG on Operational Risk Regulatory Capital. (PDF) November 2003
- RMA's response to the Basel Committee's Third Consultative Paper (CP3) on the New Capital Accord (PDF) July 2003
- Measuring Credit Risk and Economic Capital in Specialized Lending Activities—Best Practices (PDF) March 2003
This paper provides a response to the proposed regulatory capital treatment of specialized lending (SL) activities within the Basel Quantitative Impact Survey (QIS 3) dated October 1, 2002. In addition, this paper provides a survey of best practices for measuring the risk of SL activities at 10 of the 17 RMA Capital Working Group banks—a group of the largest institutions in the U.S. and Canada.
- Response to Basel’s Proposal for Allocating Capital to Securitzations (PDF) May 3, 2002
This paper communicates RMA’s concerns over the developing Basel proposals for assigning regulatory capital to various securitization activities of banks.
- Washington Mutual Mortgage Risk Study (PDF) March 13, 2002
The above paper reviews and analytically evaluates each of the major processes used by industry participants to measure credit risk for first mortgage products. Included in the study are discussions of economic capital, credit risk models, and several empirical experiments in which large historical databases are used to estimate the credit risk models.
- Working Paper on the IRB Treatment of Expected Losses and Future Margin Income (PDF) December 7, 2001
- RMA's Final Response to the Basel Committee (PDF) May 31, 2001
- Supervisory Accreditation Procedures for a Risk-Characteristic-Based Regulatory Capital Framework (PDF) December 2000
This paper focuses on the set of accreditation procedures that will be used by supervisors in each of the G-10 countries to determine whether a bank may participate in a risk-bucket-based Accord. It provides comment on a recent paper by William Treacy of the Federal Reserve staff that suggests possible accreditation procedures. Going further, it suggests a range of possible advanced-practices that might be considered by supervisors when establishing the procedures for accreditation.
- Credit Risk Capital for Retail Credit Products: A Survey of Sound Practices (PDF) December 8, 2000
This paper represents RMA's response to informal requests by the U.S. banking agencies for information regarding an appropriate regulatory capital treatment of retail credit products. In this paper, RMA provides internal economic capital allocations, bucketed by important risk characteristics—estimated expected default frequencies (EDFs) and estimated expected losses-given-default (LGDs)—for retail credit products. The survey demonstrates that a one-size-fits-all approach to retail credit capital is no more appropriate than such an approach is for commercial products. The paper also provides a broad overview of the processes banks use for estimating economic capital for retail products, so that regulators and other observers may better understand the range of practice.
- EDF Estimation: A "Test Deck" Exercise November 2000
This RMA Journal article summarizes the discussions of RMA's Capital Working Group with regard to how a supervisor can be assured that the bank's own measurements of a risk characteristic (such as credits' EDFs) are reasonable. If the measured risk characteristic for a given shared loan facility (or a group of credits of similar quality and type) varies significantly across banks, how can an equitable RCB approach be crafted? That is, how can the regulator be assured that the rule of "equal capital for equal risk" is reasonably applied? The regulator must be assured that the bank cannot simply lower its regulatory capital requirements by artificially lowering its measured EDFs or other risk characteristics.
- The Effects of Term on Economic Capital Allocations for Credit Risk (PDF) June 9, 2000
In its response to the Basel Committee on March 31, 2000, RMA promised further research. On June 9, RMA sent the Basel Committee the results of additional survey research regarding the effect of term and duration on economic capital allocations for commercial credits. In this survey, 7 of the 11 members provided estimates of economic capital for credit risk on loans of varying duration (bullet loans of 1-year, 3-year, and 5-year terms). The capital allocations were computed on a consistent basis with, and using the same assumptions as, the original survey.
- Response to U.S. Agencies' Joint Notice of Proposed Rulemaking: Risk-Based Capital Standards; Recourse and Direct Credit Substitutes (PDF) June 7, 2000
RMA expands on its March 31 response in the area of regulatory capital requirements for securitization tranches. In a four-part comment, RMA expresses strong dissatisfaction with the proposal except for its proposed treatment of capital for Asset-Backed Commercial Paper Facilities (ABCPs). Of particular concern to RMA is the dependence on external ratings of credit enhancements. Section II of the response provides a description of the internal processes used by RMA members to assess economic capital for credit risk for various credit enhancement positions. Section III applies this knowledge to an analysis of each portion of the agencies' proposal, with a resulting set of alternative recommendations. Section IV provides some concluding comments.
- RMA's Response to the Basel Committee's June 1999 Consultative Paper (PDF) March 31, 2000
In its initial response to the Committee, RMA strongly advocates an IRB approach to assign regulatory capital for advance-practice institutions. It provides the Committee with its research indicating how economic capital is allocated for a hypothetical asset with a one-year duration, based on the dimensions of expected default frequency (EDF) and loss given default (LGD).
The RMA Committee on Securities Lending
The RMA Committee on Securities Lending has formulated comments focusing on the Credit Mitigation aspects of The New Basel Capital Accord. Click here to review papers submitted by this committee.
Special Feature
For more information, contact Suzanne Wharton, 1-215-446-4089.
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